Cryptocurrency Investing: What is Circulating Supply?

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With the exponential growth of Bitcoin and its overall success, new investors are looking to cheaper coins in hopes of catching the next coin on its path to $15,000. Investors buy into coins that are as cheap as a fraction of a penny hoping to see the same results as Ethereum (ETH) or even Bitcoin (BTC), but they often overlook one key ingredient: Circulating Supply.

At the time of writing this, BTC has a circulating supply of 16.7 million coins, with the maximum amount of bitcoin being capped at 21 million coins based on the code.

With a current price of around $15,000 that brings the market cap to roughly $250 Billion. Market capitalization measures the total amount of coins in circulation times the current market price (16,777,725 BTC x $15,000 ~ $250,000,000,000). This gives Bitcoin the largest market cap of any coin at the time of writing (January 3, 2018).

What tends to happen is new investors buy into projects with billions of coins in circulation and hope they rise to prices similar to BTC, but that’s impossible. Here’s why…

Imagine a project with 50 billion coins in circulation. Let’s name it ThreeSixtyCoin, abbreviated ‘TSC’. Let’s say today, 1 TSC = $0.10, that would bring the market capitalization of TSC to $5 Billion (50 billion x $0.10). Now that’s reasonable in today’s crypto market considering the market cap of all mainstream coins added together is estimated to be around $700 Billion.

Now, if 1 TSC rose to $10, we would be looking at a market cap of $500 Billion. Close to the entire crypto market cap combined. You can only imagine how ridiculous it would be to hypothesize 1 TSC reaching $100, $1000, or even $15,000 per coin.

This has to be taken into account when considering investments and expecting prices to approach Bitcoin. A realistic prediction is a price of less than $10 per coin when considering a coin with billions in circulation, at least in today’s market.

It’s best to catch coins with large circulating supplies in their early development/ICO stage due to the fact that going from a fraction of a penny to being worth over $1 can still yield amazing returns. If you want to invest in coins that could reach prices near Bitcoin, you should focus on coins with a circulating supply that is at least in the vicinity of Bitcoin, or in the tens of millions.